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The Impact of Real Exchange Rate Misalignment and Instability on Macroeconomic Performance in Sub-Saharan Africa

Dhaneshwar Ghura and Thomas Grennes

No 51146, Working Papers from International Agricultural Trade Research Consortium

Abstract: This study investigates the relationship between indicators of macroeconomic performance and real exchange rate (RER) misalignment and instability in Sub-Saharan Africa (SSA). Three measures of RER misalignment are used. There is ample evidence that countries which have pursued more predictable macroeconomic policies and lower levels of RER misalignment have experienced better economic performance. Also, it appears that higher levels of misalignments in the RER are accompanied by higher levels of macroeconomic instability. Empirical support is found for Edwards' model of the equilibrium RER and black market premia tend to show a greater degree of misalignment than alternative measures.

Keywords: Financial Economics; International Relations/Trade (search for similar items in EconPapers)
Pages: 43
Date: 1991
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DOI: 10.22004/ag.econ.51146

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